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Adobe Remolds Itself

CFO Mark Garrett describes what it takes to remain resilient in the fast-changing technology sector.
Scott Leibs, CFO Magazine
March 1, 2012

When a company claims to be "changing the world through digital experiences," it had better be prepared to change along with it, and few can argue with Adobe Systems's history of evolving at Internet speed. Founded 30 years ago with the goal of helping creative professionals render into print what they saw on their computer screens (they were among the first companies to propel the acronym wysiwyg — what you see is what you get — into the mainstream lexicon), Adobe's new focus on "digital experiences" combines its long-standing identity as a software innovator with a new push into web-based services. Taken together, Adobe says the product/service combination allows a company to create web content and then measure its value. Mark Garrett, CFO of Adobe since 2007, explains how the recently restructured Adobe is at the vanguard of a revolution — for the third time.

As you describe it, Adobe has been through three distinct phases. How do you mark one from another?
We were founded in the early 1980s on the premise of being able to print what you saw on your computer screen. Products like PostScript sparked the whole digital print/publishing revolution. Then the web came along and we came out with products like Acrobat and Photoshop, which really created a standard for documents and images not just for print but also for the web. Today we've moved to mobile devices, and the focus is on creating and distributing content across multiple devices and multiple operating systems. Our ability to adapt to changing market dynamics has helped drive our revenue tremendously over the years.

Many software companies have great success with one or two products, but then fade. Why not Adobe?
We've been able to attract and retain fantastic talent — very technical, very savvy R&D people who have continued to innovate. Year after year, for 30 years, everyone has been waiting for some of the larger competitors to take market share from us and it just hasn't happened.

How does finance influence all that R&D? You must have far more great ideas being pitched than you can possibly fund.
We have a really well-disciplined process that begins each summer with a look at where the markets are going and where we want to be. We start by asking what our mission is as a company, and then we look at which markets are most promising for that mission, which are the fastest growing, and what the business case for each opportunity is. That strategic plan turns into the operating plan, and we get very specific about how many people we're going to hire, what the revenue and cost structure look like for the next year, and so on. We've done a very good job of creating a balanced portfolio of revenue and investment.

Given that, what was the impetus behind your November 2011 reorganization?
Basically, we said we were going to double down on our investment in two major growth themes: digital media, which is kind of our legacy, and which includes all of the creative tools you need for content creation, from Acrobat to Photoshop; and then digital marketing, which is an explosive growth area for us. We did some restructuring so that we could take investment out of some areas that didn't fit into those two major themes and redeploy it into digital marketing.

"Doubling down" sounds at odds with the idea of the "balanced portfolio" you mentioned.
There is some very healthy dynamic tension among the executive team around that issue. I sometimes find myself on the side of the coin that favors a trimming back of expenses and delivering a healthy return to shareholders. But it's all about balance. For example, I hired a head of purchasing and made that function much more strategic, which has helped drive down costs. But finance also consults closely with our lines of business on what we can do from a go-to-market strategy to drive more revenue.

"Digital marketing" is a concept CFOs should love, since it tries to bring metrics to an aspect of business that has long defied measurement.
Ultimately we want to be to the chief marketing officer what salesforce.com is to the head of sales and what ERP is to the CFO — a complete workflow system that allows CMOs to make, manage, measure, and mobilize content. CMOs like to say that marketing is the new finance, because it is moving sharply from art to science. I think the ability to measure the impact of online marketing and calculate an ROI is bringing marketing and finance much closer together.

We just did a story on how to calculate the ROI of social media [see "Who's Out There?" January/February], and it's clear that companies are struggling with this.
Social media is yet another new opportunity in the digital space, true, and people have to decide whether and how much to invest in display ads versus Facebook versus Google search terms, and so on. Our tools help people make those trade-offs, which is why we are very excited by digital marketing's growth potential.

Part of your recent reorganization involved laying off 750 people. You are a CFO who is very interested in human capital. What role did you play in shaping that workforce reduction?
It was very collaborative, but it was really up to the general managers for each of the businesses to determine how we would grow each one. We saw a chance to grow our digital marketing business, which was already growing at 20%, by 25%. But to do that we had to invest more and invest faster, and that had to come from somewhere. So we pulled back from two products, and as part of that some people did, unfortunately, have to leave the company.


There is another transition underway as well, industrywide, and that is to a cloud-based, software-as-a-service [SaaS] model. How does that affect Adobe from a finance perspective?
Our finance team supports two large businesses that have very different models. Digital marketing is SaaS-based. It's a truly hosted offering, and so that has a different P&L, so to speak, from our more traditional, nonhosted digital-media business. That latter business is moving to a subscription model, but it won't be cloud-based: you'll pay to download and use, say, Photoshop on your desktop for some defined period of time. The two businesses do require somewhat different finance skill sets, but we have those largely in place, so we did not need to restructure finance in parallel with this overall restructuring.

Are you concerned about the state of the European economy?
Like most CFOs, I keep an eye on Europe and have some concerns, but we finished very strongly there in 2011. We're in it for the long term, and we view the current situation as simply requiring us to manage through some tough times. We still see it as a very big opportunity for us over the long term.

What other opportunities are you looking at?
Clearly, the biggest opportunity for us is in emerging markets. We already have a lot of software penetration in the BRIC countries [Brazil, Russia, India, and China], but frankly, most of it is pirated; we don't have a lot of revenue being generated from those places. The new subscription model should help us with that, because to the extent that the software becomes less of a boxed product and more of a subscription that requires you to log in, we think that will help us combat piracy. And, on the plus side, we already have, thanks to piracy, very good brand recognition in those countries!




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